Queensland budget 2012: experts respond

Queensland Treasurer Tim Nicholls has called the Queensland budget “the most important state budget in a generation”.

The Queensland government will cut 14,000 public sector jobs, hike mining and gaming royalties and increase parking fines and speed cameras in an effort to get back in the black and regain its AAA credit rating.

Queensland treasurer Tim Nicholls said the budget delivered the “tough medicine” required to ensure the state stabilised its debt levels. The government is forecasting a $10.7 billion deficit for this financial year, with a fiscal surplus of $652 million in 2014/15.

“It’s the first time in nine years the state will have a genuine surplus and live within its means,” Mr Nicholls said. “Queensland will no longer have to go cap in hand asking like Oliver Twist "Please sir can I have some more”.“

In exchange for major job cuts in the health sector, the government will spend $816 on Queensland Health, including new programs to make more staff available on weekends, reducing waiting lists and delivering the already promised 3% pay rise for nurses and midwives.

An additional $20 million will be spent on attracting tourists to the state, the first home-owners grant will be boosted to $15,000 for those buying new homes, and the payroll tax threshold will lift from $1 million to $1.1 million in 2012-13 in an effort to assist small businesses.

Big business is not as fortunate, with the state targeting the casino sector for an additional $30.8 million in revenue over four years. The government will also increase the royalty rates for coal, seeking to raise $1.6 billion over four years as it looks to the state’s emerging coal seam gas industry.

The Conversation asked a panel of experts to comment on the Queensland budget, labelled by Treasurer Tim Nicholls as "the most important state budget in a generation”.


John Quiggin, Professor in the School of Economics at University of Queensland

It’s a budget of gross inconsistency.

We’ve got got these drastic cuts in areas like health services, contrary to election promises, whereas at the same time outside the public service there’s no real fiscal discipline in this budget at all.

The mining royalty is an attempt to extract money from the Federal Government - the State Government hopes they can take this money and reduce the Federal Government’s take. We’ll see how that goes.

The only taxes that have been increased are the worst and most regressive taxes available, such as gaming tax.

They have increased stamp duty on higher value houses but they haven’t touched payroll tax or land tax - the areas they should be targeting if they are serious.

We’re seeing a bunch of measures, which are typical, but not what you’d expect to see in a State that’s allegedly on the verge of becoming Spain or Greece.

They really haven’t bitten the bullet on the revenue side, they haven’t tackled payroll tax and they are increasing the distortions in land tax and payroll tax by the measures they’ve taken.

It’s become clear that the job cuts are going to be focused in the health sector and the obvious question is: Can they sustain that?

It’s one thing to announce the cuts but when waiting lists blow out and people start dying will they have the nerve to retain those cuts?


John Humphreys*, Economist and PhD candidate at the University of Queensland

Before the budget came down, Campbell Newman described it as a “once in a generation budget”. That is certainly what Queensland needed. Our long-term budget position is actually worse than the audit report or old budget papers claim, since they don’t factor in the growing fiscal pressures over the coming decades caused by an ageing population. Put simply, current policies are unsustainable, and some tough decisions are needed.

The first thing to note is that the government decided to give up on fixing the 2012/13 budget.

They have allowed the operating deficit to increase from an estimated $4.9 billion (Audit) to $6.3 billion, and the fiscal deficit to increase from an estimated $9.5 billion (Audit) to $10.8 billion. This is perhaps understandable since the federal government has been playing games with their grants (shifting money around to try and manufacture a federal government surplus) and the lag time involved in reforms. So the real place to watch is the estimate for the 2013/14 budget balance.

To their credit, the government has made some tough decisions for the 2013/14 budget. The best indicator of whether a government is serious about fixing a budget problem is to look at estimated spending, and budget papers show that government spending is forecast to reduce slightly from $48.5 billion (2012/13) to $47.9 billion (2013/14).

It is this spending freeze (along with extra mining royalties) that allows the government to forecast an improvement in the budget balance — with a 2013/14 operating surplus of nearly zero and a 2013/14 fiscal deficit of $3.8 billion. The forecast for a fiscal surplus in 2014/15 is nice, but it is hard to take long-term budget predictions too seriously.

The government deserves credit for that effort, but there are still issues of concern.

First, it is easy to predict future austerity and surpluses, but it is harder to actually make it happen. Spooked by a bit of bad press, governments often feel the pressure to keep handing out taxpayer money to loud lobby groups in the hope of buying favour and another term in office. Already we have seen hints of this with unnecessary and wasteful handouts to tourism and other privileged industries in the budget. The Newman government will need to hold fast to strict fiscal rules, practice saying “no” to special interest groups, and make sure they actually achieve their promised surplus.

Second, given the strong economic growth in Queensland and Australia at the moment, we really should be in surplus already. The idea of balanced budgets over the cycle means that we should be running surpluses during times of growth and then we can allow deficits in times of economic stagnation. The budget papers predict healthy economic growth of 4% and yet we have deficits predicted for the next two years. Given that the government was going to be attacked for cutting spending anyway, a case can be made that they should have cut harder and quicker.

Third, this budget has not looked at the necessary reforms that Queensland (and all other States) need to make to ensure the budget is sustainable in the medium term. An ageing population and a growing welfare mentality is putting upward pressure on government spending over the coming decades that cannot be afforded. At some stage, a brave government will need to start a transition towards health and education systems that involves more personal responsibility and individual contributions. Change is always hard, but if we don’t start preparing for these reforms now then the problems are only going to grow. The first budget of a new government is generally the best opportunity for dramatic reform, so this might be seen as an opportunity lost.

In all, this budget is above average without being brilliant.

As a postscript it is worth noting something about the big issue of public service jobs. Some commentators have complained that the bureaucracy is being gutted, but the budget papers show that total employee expenses have moved from $18.2 billion in 2011/12 up to $18.5 billion in 2013/14. All dramatic rhetoric to the side, that doesn’t represent “massive cuts”.

*John has worked previously for the Commonwealth Treasury and is a member of the Liberal National Party.


Geoff Cockfield, Associate Professor of Government & Economics and Deputy Dean at University of Southern Queensland

The initial budget speech and summaries suggest a number of interesting questions and even contradictions.

First, the current situation is apparently all the previous government’s fault but there is some discussion of current economic conditions, with weaker commodity prices, a slowing construction sector and weak employment demand. Very sensible to be cautious, but did these all manifest in the last five months? Perhaps we can’t expect too much consistency in an oppositional political system.

Second, according to the budget speech rhetoric, this government is all about private enterprise, but perhaps not so much self-reliance. Once again, tourism, gets additional money and while thankfully the first home owners grant has been scrapped there is a new home owners construction grant.

The government has heeded the argument that a first home owner grant simply adds to the price of housing, but won’t the construction grant still increase the cost of building through increased demand for builders and perhaps in a market where resale value might be falling? Perhaps this will create an oversupply and drive prices further down and this will make housing more affordable.

Third, how is the increase in state royalties responsible while the Federal Government’s MRRT and carbon tax are set to cripple the mining industry? Indeed, coal royalties will increase just as commodity prices are softening, although they seem to apply only when the price is greater than $100/tonne (simple super-profits tax?). Perhaps the assumption is that this will scare the Federal Government out of docking state income, as John Quiggin implied, and so mining companies will be no worse off.

Finally, what sort of restructuring is to go on in the public sector? Employee numbers will decrease by more than 6.7% but employee expenses will only decrease by 1.65% (according to John Humphreys’ figures). Does this mean the government will keep the highly paid or even employ more of them, while sacking those who cost less? Wouldn’t more vertical cuts have more financial impact? Far from being particularly innovative, this budget looks rather familiar: hit the boom sector and the sinners (gambling taxes) for some more income; cut the public sector but give some money to health as its a politically fraught area; flirt with outsourcing as being more efficient; keep some selective infrastructure projects going but don’t commit to too much; and pray for a recovery.


More to come.